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Latest threat to the Eurozone: Catalonia independence quest

September 29, 2012 | 2:03
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Just when it seemed stability was on the horizon for the tumultuous Eurozone, with Spain getting a grip on its debt financing and a plan to bail out insolvent banks, a fresh threat to the common currency has emerged with Catalonia's reignited drive to secede from the Spanish kingdom.

More than a million residents of the country's most prosperous region rallied for independence in a protest of historic proportions on Sept. 11, Catalonia's National Day. Some estimates put the crowd as high as 2 million, or more than a quarter of the 7.5 million who live in the northeast region including Barcelona. This week, after Madrid rebuffed Catalonia leader Artur Mas’ demand for more control over his region’s tax revenues, the regional parliament set a Nov. 25 date for polling Catalans on "self-determination."

Spain’s constitution doesn’t empower the regions to call votes on sovereignty and questions of national integrity. But Mas has said his region will go ahead with a referendum without the central authorities’ approval to address what Catalans consider a grave injustice: They pay as much as $20 billion more into national coffers each year than they get back in public services.

The prospect of a national breakup, no matter how remote and fraught with procedural complications, spurred Spanish King Juan Carlos into rare action on a political matter.

“In these circumstances, the worst thing we can do is divide our forces, encourage dissent, chase chimeras and deepen wounds," the king warned in a letter posted on a new palace website, the daily El Pais reported. It was an apparent allusion to the nationalist stirrings that spurred the Spanish Civil War in the 1930s and a dictatorship under Gen. Francisco Franco that endured until his death in 1975. It was the first time the Spanish monarch weighed in on a political issue in more than 30 years.

Other influential Spaniards have also stepped forward to propose compromise, such as a looser federal structure that would give rebellious regions like Catalonia more autonomy without fracturing a country that has also dealt with a Basque separatist movement for decades. Juan Luis Cebrián, media mogul and author, warned last week that all the secession talk threatened to unleash the “wild beast” of right-wing nationalism that shackled Spain’s development for much of the 20th century.

Catalonia secession is neither a sure thing nor an imminent one, analysts note. Catalans for centuries have been bandying about the idea of independence for their thriving bastion of manufacturing, shipping, tourism and culture. The conservative government of Spanish Prime Minister Mariano Rajoy has made clear that it opposes Catalonia’s bailing on the rest of the kingdom, and it holds what essentially could be a veto if the region envisions moving into statehood and taking its Eurozone membership with it. By charter, the Eurozone’s 17 members would have to unanimously approve induction of any new euro currency user.

Mas may be stirring the secession quest to force Madrid to cede more power to Catalonia over its own finances. But in an environment of deep public spending cuts, the second bout of recession in four years and unemployment afflicting 1 in every 4 Spaniards, the notion of sheering off the northeastern corner flanked by Andorra, France and the Mediterranean Sea is clearly appealing to many. Catalonia accounts for 20% of the Spanish gross domestic product and a quarter of its exports.

Catalonia secession has long been part of the political landscape in Spain and has just entered a more active phase because of the tough living conditions resulting from European Union austerity measures demanded to keep euro users' national deficits in check, said Fabian Zuleeg, chief economist at the Brussels-based European Policy Center.

"This is potentially more serious, as it reflects a real conflict between the national and regional levels," Zuleeg said. "The way Catalonia sees it, they've been paying in excessively into the national coffers and, because they have their own deficit, they have to go cap in hand to the Spanish government," only to be denied latitude to keep the regional economy on track.

The 2013 budget unveiled Thursday requires all regions to cut back further on already pared public spending and to generate more tax revenue to service staggering national debts. The piled-on austerity measures are fomenting unrest throughout the country, as seen this week in angry protests demanding job creation and investment in growth, which had to be dispersed with tear gas and mass arrests.

The Catalans' reignited campaign for independence "is an escalation but by no means the last act," said Uri Dadush, director of the international economics program at the Carnegie Endowment for International Peace. "But it's another source of tension in Spain, a complicating factor and another way that things could unravel."

Hit by bailouts, failing banks, unsustainable interest rates and mounting public resentment of the severe belt-tightening across the European periphery from Ireland to Greece, the common currency is at risk, Dadush said, of "death by a thousand cuts."

Photo: More than a million supporters of independence for Catalonia rallied in Barcelona and other cities on Catalonia National Day, Sept. 11, pressing secession as a means of controlling their own finances and preserving their language and culture. Credit: Stefano Buonamici / Bloomberg